Summary:
Montana Contractor Compensation Fund (MCCF) brought this action for indemnification
from Liberty Northwest Insurance Corporation (Liberty), the insurer for
a prior injury. MCCF alleged that a subsequent injury, for which it was
at risk, was an immaterial and temporary aggravation of claimant's original
industrial back injury which was covered by Liberty. It urged that claimant's
current condition and disability are attributable to the prior injury.
This Court previously found for MCCF. Claimant's attorneys are now seeking
Lockhart attorney fees with respect to medical benefits paid
by MCCF for claimant's surgery.

Held:
Claimant's attorneys are entitled to Lockhart attorney fees only
if the medical benefits were paid as a result of their efforts. In this
Belton type case, the evidence shows that once a claim was brought
to the attention of the second insurer, the natural course of investigation
resulted in the payment. The contribution of the claimant's attorneys
was to set in motion events that eventually led to the lodging of a claim
with the second insurer. That contribution does not entitle them to Lockhart
fees.

Attorney Fees: Medical
Benefits.Pursuant to Lockhart
v. Hampshire Ins. Co., 1999
MT 205, ¶ 25, 295 Mont. 467, 984 P.2d 744, a claimant's attorney
who secures disputed medical benefits on behalf of the claimant is entitled
to a lien for attorney fees with respect to such benefits. However,
the medical benefits must in fact be disputed and must in fact be obtained
through the attorney's efforts.

Cases discussed:
Belton v. Carlson Transport, 202 Mont. 384, 658 P.2d 405 (1983).
In light of Abfalder v. Nationwide
Mutual Fire Ins. Co., 2003 MT
180, this Court's prior holding in Liberty
Northwest Ins. Corp. v. State Compensation Ins. Fund,
2001 MTWCC 56, ¶ 36, is overruled to the extent it conflicts with
Afbalder and the decision in this case. Where a claimant arguably
aggravates a preexisting injury in a subsequent work-related incident,
and there is a dispute between insurers as to whether the subsequent
injury is permanent or merely temporary, or whether it or the prior
injury is the cause of the claimant's current condition and disability,
or whether the claimant had reached maximum medical improvement, the
insurer for the subsequent injury is liable for benefits "until it proves,
or until another insurance company agrees, that it [the other company]
should pay the benefits." Beltonv. Carlson Transport,
202 Mont. 384, 658 P.2d 405, 409-10 (1983).

¶1 On February 19, 2003, this
Court entered Summary Judgment finding Liberty liable for the claimant's
occupational disease and directing Liberty to reimburse MCCF for benefits
paid to the claimant. The judgment was final insofar as the issues decided.
These issues were (1) which of the two insurers is liable for the claimant's
back surgery and current back condition and (2) whether MCCF can recover
attorney fees from Liberty.

¶2 Following entry of summary
judgment, Liberty and claimant settled claimant's request for past temporary
total disability (TTD) benefits, attorney fees, and a penalty. Two unrelated
issues remain. The first is whether claimant's attorneys are entitled
to Lockhart fees with respect to claimant's surgery and related
medical expenses. In the event that question is answered in the affirmative,
the Court must then determine whether MCCF or Liberty should absorb the
Lockhart fees. This second question arises because MCCF paid
medical providers the full amount of their allowable fees without deduction
for the claimed lien.

Factual Background

¶3 The question concerning
the Lockhart lien is complicated and difficult. What occurred
in this case should not have occurred.

¶4 As set out in the Summary
Judgment decision, claimant suffered an industrial injury of his back
on December 8, 1998, while working for D'Agostino Concrete. Liberty was
the insurer at risk at that time and accepted liability for the injury.
Claimant continued working but continued to have back pain, including
a flareup on April 12, 2000. At the time of the April flare-up, his employer
had changed ownership and was then owned by JTL Group, Incorporated (JTL).
Its insurer was MCCF.

¶5 Claimant reported his April
12, 2000 flareup to JTL the same day. According to a February 15, 2001
letter from JTL, claimant reported that "he was experiencing back pain
after hitting a bump while going over a bridge." (Aff. of Charles F. Angel,
Ex. 8.) JTL sent claimant to the Emergency Room at Bozeman Deaconess Hospital,
where he encountered Dr. Steven R. Speth, who had been treating claimant
with respect to his back problems. (Id.) According to the employer,
Dr. Speth told claimant that "his injury was the same injury he had been
treating him for." (Id.) On that basis, JTL declined to file
an Employer's First Report of Injury. (Id.) Claimant did not
pursue the matter further with JTL at that time and there is no indication
that MCCF was notified of the matter until a year later.

¶6 In September 2000, Dr. Speth
recommended back surgery. His office telephoned Liberty for prior approval.
(Aff. of Charles F. Angel, Ex. 3.) Liberty denied the request, taking
the position that claimant had suffered a new injury. The denial was then
communicated directly to claimant in an October 3, 2000 letter from Kerri
Wilson, an adjuster for Liberty. The letter read in full:

We received a report and
telephone call from Dr. Steven Speth's office requesting surgery of
your low back. As you already know, this surgery was denied.

It is our opinion that your
current back condition is not related to the industrial accident of
December 8, 1998 while employed at D'Agostino Concrete. Further, it
is our opinion that you sustained a new incident on April 12, 2000 while
driving a truck and hit a bump. Therefore, all treatment and benefits
for your low back condition is denied.

Should you disagree with
this decision, you may file for mediation by contacting the Employment
Relations Division at PO Box 8011, Helena, Montana, 59604, or calling
at (406) 444-6530.

¶7 Prior to receipt of the
October 3, 2000 letter, but after having learned that Liberty had denied
Dr. Speth's request, on September 21, 2000, claimant hired the Angel Law
Firm in Bozeman to represent him with regard to his industrial injuries.
(Aff. of Charles F. Angel.) At the time of the law firm's retention, Mr.
Charles F. Angel of that firm understood that Dr. Speth had recommended
surgery on account of the December 8, 1998 back injury and that Liberty
had denied his request for approval of the surgery. Mr. Angel was also
informed of the April 12, 2000 incident. He wrote to JTL Group on September
22 and 25, 2000, to request a copy of the Employer's First Report of the
incident. (Id., Exs. 1-2) He did not receive a reply so he wrote
JTL again on February 2, 2001, to again request the first report. (Id.,
Ex. 7.) He finally received a reply on February 15, 2001. The content
of the letter is discussed in paragraph five.

¶8 A copy of a September 21,
2000 attorney retainer agreement was forwarded to MCCF, which received
it on October 3, 2000. (Aff. of Bradley J. Luck, Ex. 2.) That agreement
identified both the industrial accident of December 8, 1998 and the incident
of April 12, 2000, and identified both the 1998 and the 2000 employers.
MCCF had not received a claim for the April 12th incident and
did nothing in response.

¶9 Meanwhile, Mr. Charles F.
Angel also wrote to Dr. Speth on October 23, 2000, requesting his medical
records. (Aff. of Charles F. Angel, Ex. 4.) Upon receiving and reviewing
the records, he understood them to indicate that the claimant's need for
surgery arose from his 1998 injury. (Id., Ex. 5.)

¶10 There is no record of the
Angel Law Firm communicating directly with either Liberty or MCCF until
at least March 23, 2001, when it filed a request for mediation with the
Montana Department of Labor and Industry (Department). (Aff. of Bradley
J. Luck, Ex. 3.) In that request, the claimant stated that "both Liberty
Northwest and JTL have been contacted regarding my need for surgery."
He identified both the December 1998 injury and the April 2000 incident.
A copy of the mediation request found its way to MCCF on April 16, 2001,
possibly either through JTL (assuming it received a copy) or from the
Department. It is unlikely that claimant's counsel sent it to MCCF since
MCCF was not identified in the mediation petition and it took a month
for the petition to reach that insurer. Moreover, in his Reply to MCCF's
Answer Brief in Opposition to Motion For Fees, Mr. Christopher R. Angel
states that the first mediation conference was postponed because "JTL
Group was not notified of the Mediation by the Department of Labor." He
goes on to say that after the first conference was vacated, JTL was notified
and given thirty days to respond. (Reply to MCCF's Answer Brief in Opposition
to Motion For Fees at 3.)

¶11 Indeed, no written claim
against MCCF was ever filed by or on behalf of claimant. Rather, after
filing for mediation and learning that the claim period was running out,
claimant's attorneys requested MCCF to treat the mediation request as
a claim. (April 8, 2003 Hearing Tr. at 13, 20.) It apparently agreed to
do so.

¶12 After receiving a copy
of the mediation request, MCCF turned the matter over to Mr. Bradley J.
Luck, its present counsel, who reviewed the matter and determined that
it was a Belton matter, i.e., either MCCF or Liberty was liable.
(Aff. of Bradley J. Luck.) However, Mr. Luck felt the information furnished
to him at the time was insufficient to determine which carrier was responsible
or to determine whether surgery was needed on account of an industrial
injury. (Id.) On June 21, 2001, he requested further medical
records from Mr. Charles F. Angel (id., Ex. 4), but ultimately
secured them from Liberty rather than Mr. Angel. (Aff. of Bradley J. Luck.)
He then opined that additional medical records were needed and suggested
taking a sworn statement from Dr. Speth to resolve the issues. (Id.)
Shortly thereafter, on July 3, 2001, MCCF, through Mr. Luck, began paying
TTD benefits retroactive to June 15, 2000, under a reservation of rights.
(Id., Ex. 5.) A decision regarding payment for surgery was deferred
until a sworn statement of Dr. Speth could be taken. (Id.)

¶13 On July 25, 2001, Mr. Luck
notified Mr. Christopher R. Angel, as well as Mr. Larry W. Jones, counsel
for Liberty, that Dr. Speth's sworn statement was scheduled for August
30, 2001. (Id., Ex. 9.) Mr. Angel failed to show up at the scheduled
time and the statement was postponed. (Id., Ex. 10.) Mr. Luck
had difficulty rescheduling the doctor and it was not until November 8,
2001, that his statement was ultimately taken. (Id., Exs. 11-
12.) Based on Dr. Speth's opinion that claimant's proposed surgery was
attributable to his 1998 injury, on December 5, 2001, MCCF requested Liberty
to assume liability. (Id., Ex. 13.) Liberty refused and on December
11, 2001, MCCF wrote to Mr. Christopher R. Angel and Mr. Jones notifying
them that MCCF was agreeing to pay for claimant's surgery pending an ultimate
Belton determination. (Id., Ex. 14.)

¶14 In his December 11, 2001
letter to Mr. Christopher R. Angel and Mr. Jones, Mr. Luck acknowledged
receiving a letter from Mr. Angel asserting a Lockhart lien against
medical benefits. He responded to that letter as follows:

I received the letter from
Chris on fees. It does not appear to me that the payment for the surgery
was ever an issue and that fees are not due. Regardless, we have authorized
the surgery and will pay the fee under the schedule after being billed
by Dr. Speth and others providing medical services. I do not want to
have a problem with the fee and lien issue. If you expect us to add
your name on the checks to the medical providers, I suggest you advise
all of them in advance so that we don't have a problem. I also hope
that the fee request will not interfere with the scheduling of the surgery.

Chris, we would appreciate
it if you would detail your position on this issue as we want to be
sure there are no miscommunications.

(Id., Ex. 14.) Mr.
Angel wrote back reasserting the lien and advising "the onus is on the
carrier(s) to honor the lien." (Aff. of Christopher R. Angel, Ex. 6.)
The surgery took place on January 14, 2002. (Summary Judgment, ¶ 32.)
MCCF paid the medical bills for the surgery without withholding any amount
for Lockhart fees.

Discussion

I.

¶15 In Lockhart
v. Hampshire Ins. Co., 1999 MT
205, ¶ 25, 295 Mont. 467, 984 P.2d 744, the Supreme Court held "that
an attorney representing an injured claimant is entitled to collect an
attorney fee based upon the amount of disputed medical benefits ultimately
paid by the insurer." The decision was based on the statutorily authorized
fee agreement between claimant and his attorneys wherein the claimant
agreed to pay a percentage contingent fee on amounts obtained through
the efforts of his attorneys.

¶16 My initial impression during
the hearing was that claimant's attorneys were entitled to Lockhart
fees because claimant was receiving no benefits at the time he hired
the Angel Law Firm and the attorneys then set in motion the events that
ultimately led to MCCF's agreement to pay for claimant's surgery. (Hearing
Tr. at 49-52.) Upon further analysis of the facts of this case, I have
concluded my initial impression was erroneous.

¶17 From the get-go, this case
presented a Belton situation (Belton
v. Carlson Transport, 202 Mont. 384, 658 P.2d 405 (1983)), meaning
that one or the other of the two insurers was liable for claimant's back
condition. Under Belton whichever insurer was at risk should
have immediately stepped up to the plate to pay benefits and then sought
indemnification from the other if it felt the liability was misplaced.
From the get-go, claimant's physicians were going to ultimately be paid
by one or the other of the insurers once claimant's need for surgery and
the relationship of the surgery to his industrial condition were established.
Liberty simply refused to step up to the plate. When finally dumped in
its lap, MCCF sought additional information to determine its potential
liability and whether the surgery was necessary and related to an industrial
condition. It proceeded diligently to obtain the necessary information.
To hold that the physicians who ultimately undertook the surgery on claimant
are liable(1) for Lockhart fees
under these circumstances would be a travesty of justice.

¶18 This case is further complicated
by the failure of claimant or his attorneys to even file a claim with
MCCF. There is no indication the Angel Law Firm ever sought to identify
JTL's insurer. It could have done so by contacting the Department and
then put both Liberty and MCCF on notice that Belton applied
and demanded that one or the other commence benefits. Instead, the Angel
Law Firm contacted the employer directly to request a first report, then
waited six months to file for mediation. Even then it had not identified
MCCF or filed a written claim for compensation with respect to the April
2000 incident.(2)

¶19 Then, when a sworn statement
of Dr. Speth was set up by MCCF to obtain further information which would
allow it to determine whether it was liable for the claim and whether
surgery was industrially related, claimant's attorneys failed to show
up at the scheduled time, causing a two-month delay in obtaining Dr. Speth's
opinions.

¶20 In one sense, the surgical
benefits were the result of the efforts of claimant's attorneys. The Angel
Law Firm did get the ball rolling with the petition for mediation. This
in turn eventually led to the identification of MCCF and thereafter its
agreement to pay for the surgery pending a final resolution of liability.
It was that sense of achievement that led me to indicate during the hearing
on the motion for Lockhart fees that the attorneys' efforts secured
the surgical benefits.

¶21 But, should this situation
be treated any differently than one in which a claimant actually submits
a claim to the insurer, which then requests additional information necessary
to make an informed determination regarding liability; which then diligently
obtains the information and agrees to pay benefits based on that information?
Should it make a difference if claimant submits the claim only after securing
an attorney? I think not.

¶22 While I wondered at hearing
whether JTL's statements might give rise to an estoppel regarding claimant's
failure to pursue an earlier claim for the April 12, 2000 injury, thus
requiring an attorney, the record in this case indicates that the claimant
believed an Employer's First Report had already been filed. He was not
misled as to his right to file a claim. While he believed that the employer
had filed a first report, there was no evidence that his belief was based
on any action or statement of the employer. Claimant was specifically
notified of the need to pursue a claim against JTL's insurer when he received
the October 3, 2000 letter from Liberty. That letter relayed Liberty's
"opinion that you sustained a new incident on April 12, 2000 while driving
a truck and hit a bump." (Aff. of Charles F. Angel, Ex. 3.) JTL did not
have a duty to solicit a claim; it was claimant's burden to follow through
and file the claim. Ricks v. Teslow Consolidated, 162 Mont. 469,
484, 512 P.2d 1304, 1312 (1973).

¶23 Moreover, claimant's attorneys
surely knew or should have known that the burden was on claimant to file
a written claim with JTL's insurance company. They surely knew or should
have known of the Belton rule. There is no basis for holding
MCCF, or its insured, responsible for the claimant's failure to submit
a claim to MCCF.

¶24 I am not persuaded that
the contribution of the claimant's attorneys was anything more than initiating
a process which resulted in notifying MCCF of the alleged April 12, 2000
industrial accident and setting in motion a claim investigation necessary
to determine liability and the benefits due claimant. Once a claim is
submitted, the insurer is entitled to obtain information sufficient to
allow it to make an informed decision. If the additional information demonstrates
liability, then acceptance of liability is inevitable unless the insurer
acts unreasonably. Benefits obtained as a result of gathering necessary
information to evaluate a claim are not the result of the efforts of an
attorney who has facilitated the process simply by directing the claimant
to the proper insurer, rather they flow from the normal claims process.
Both Mr. Luck and Mr. Jones provided affidavits stating that all counsel
agreed that Dr. Speth's sworn statement was needed to determine which
insurer was liable for claimant's condition and whether there was a connection
between the surgery and claimant's industrial injury. (Aff. of Bradley
J. Luck, ¶ 5; Aff. of Larry W. Jones, ¶ 4, 6.) Their statements are uncontradicted
and I take them at face value. The investigation into liability was then
impeded by the failure of claimant's attorneys to attend the first scheduled
sworn statement of Dr. Speth, thus delaying the decision to pay for the
surgery. Once Dr. Speth's statement was actually taken, Mr. Angel's participation
in the questioning was limited to four questions.

¶25 I therefore conclude that
claimant's counsel is not entitled to Lockhart attorney fees
with respect to medical benefits for the claimant's surgery.

II.

¶26 In light of the above conclusion,
I need not consider which of the insurers should be responsible for paying
Lockhart fees in light of MCCF's failure to withhold the claimed
fees from the amounts it paid medical providers. I also do not consider
whether they should absorb the fees without recourse against the providers
in light of the clear Belton situation.

III.

¶27 Finally, during oral argument
Liberty's attorney requested further clarification of the rule determining
which insurer is responsible for paying benefits in a disputed Belton
situation such as this. Belton concerned liability of successive
insurers in subsequent injury cases. It put the burden of proof and initial
responsibility for benefits upon the "insurer at risk":

We hold that the burden
of proof is properly placed on the insurance company which is on risk
at the time of the accident in which a compensable injury is claimed.
This holding assures that claimant will always know which insurer he
can rely on to pay the benefits. It is the duty of the insurance company
on risk to pay the benefits until it proves, or until another insurance
company agrees, that it should pay the benefits. If it is later determined
that the insurance company on risk at the time of the accident should
not pay the benefits, this insurance company, of course, has a right
to seek indemnity from the insurance company responsible for the benefits
already paid out to the claimant.

Belton, 202 Mont.
at 392, 658 P.2d at 409-10.

¶28 While the Belton rule
initially seems straightforward, it is difficult to apply in some situations,
for example where it is the initial insurer rather than the claimant who
asserts there has been a subsequent accident, or where the claimant alleges
a subsequent accident but also alleges that it amounted to only a temporary
aggravation of an injury for which a previous insurer is liable. In Liberty
Northwest Ins. Corp. v. State Compensation Ins. Fund,
2001 MTWCC 56, ¶ 36, I surveyed the progeny of Belton and
noted that under these cases the "insurer at risk may be either the first
or the second insurer" depending on whether the claimant was asserting
a new material injury or insisting that the first injury is the cause
of his or her disability. I therefore determined that the insurer at whom
claimant pointed the finger should initially pay benefits.

¶29 That being said, the recent
decision in Abfalder v. Nationwide Mutual
Fire Ins. Co., 2003 MT 180,
brings my prior analysis into question. That decision affirmed this Court's
determination that claimant's disability was due to his initial occupational
back disease in 1994 and that subsequent injuries, reported to and accepted
by a different insurer, were not material aggravations which relieved
the initial insurer from liability for the claimant's current condition.
In its decision on appeal, the Supreme Court considered the first insurer's
argument that,

When a subsequent injury
has arguably aggravated a preexisitng condition, the
second insurer avoids liability for that condition only
upon proving the claimant had not reached maximum medical healing with
respect to his prior workers' compensation injury or that
the second injury did not in fact permanently aggravate the underlying
condition for which the prior insurer was liable.

2003 MT 180, ¶ 15; emphasis
in original. The quoted argument was taken verbatim from my decision below,
2001 MTWCC 9, ¶ 108. The Supreme Court held "Nationwide [the first insurer]
is correct regarding upon which party the burden of proof is placed" but
found that this Court had not shifted that burden. 2003 MT 180, ¶ 16.

¶30 In Abfalder the
claimant asserted that a 1996 aggravation was the significant injury.
2001 MTWCC 9, ¶ 38. Thus, his target was the second insurer and placing
the burden of proof on that second insurer was fully compatible with my
analysis in Liberty Northwest. On appeal the Supreme Court did
not specifically address the specific issue raised in Liberty Northwest
or survey the cases I reviewed in Liberty Northwest.

¶31 Nonetheless, the Supreme
Court endorsed the above quoted standard without qualification. That standard
unequivocally places the initial responsibility for benefits, and the
burden of proving a different insurer is liable, upon the second insurer
if there is a subsequent incident which "arguably" aggravates a preexisting
condition. The standard does not depend on which insurer the claimant
asserts is liable and covers situations where the parties may simply be
in doubt as to responsibility. Frankly, it is better and easier to apply
the rule, and is consistent with the Belton rationale of assuring
that claimants will always know which insurer should pay. It also prevents
the claimant from determining the burden of proof in a dispute between
two insurers. Finally, it makes sense; if there is no incident which arguably
aggravated a preexisting injury, then there is no Belton issue.

¶32 I therefore overrule my
holding in Liberty Northwest. Henceforth, in any case where a
claimant arguably aggravates a preexisting injury in a subsequent work-related
incident, and there is a dispute between insurers as to whether the subsequent
injury is permanent or merely temporary, or whether it or the prior injury
is the cause of the claimant's current condition and disability, or whether
the claimant had reached maximum medical improvement, the insurer for
the subsequent injury is liable for benefits "until it proves, or until
another insurance company agrees, that it [the other company] should pay
the benefits." Belton, 202 Mont. at 392, 658 P.2d at 410.

1. No matter
how you cut it, the fees come out of payments the physicians would otherwise
receive, not out of claimant's pocket. It is in that sense that I use
the word "liable."

2. The
copy of the attorney fee agreement received by MCCF in October 2000, did
not constitute a claim or provide it with adequate notice. Neither JTL
nor MCCF were required to solicit a claim from the claimant. Ricks
v. Teslow Consolidated, 162 Mont. 469, 484, 512 P.2d 1304, 1312 (1973).